Crude oil prices surged $25 per barrel during the last quarter of 2011 and, despite a sharp correction in mid-December, held stubbornly above the $100 mark into mid-January (Figure 1).
And although oil has moved in and out of the market spotlight over the past few years since peaking and crashing in 2008, Figure 2 shows it has left its 2009 low far behind and is poised to challenge 2011’s peak of $114.83.
Is the most recent rally just that — an essentially meaningless challenge to a past high — or something more? As is often the case in the crude market, the upswing was fueled in part by geopolitical jitters. With Iran starting to throw its nuclear-program weight around — and even briefly (if absurdly) threatening to block the Strait of Hormuz in the Middle East’s key crude export shipping lane — supply shock risk has put crude oil traders on the edge of their seats, prepared to propel oil higher at a moment’s notice.
One the flip side, however, demand for crude has actually fallen, especially in the U.S. where higher prices at the gasoline pump have helped dampen consumption.
“The market is torn between geopolitical events in the Arabian Gulf and downward revisions in oil demand due to the sluggish growth in Europe,” says Andy Lipow, president of Lipow Oil Associates.
A solid move above the implied resistance of the November-December-January highs in the $102-$104 range will certainly trigger breakout signals, bandwagon jumpers, and potentially even some longer-term trend-following systems, but the market is still quite a distance from its 2008 peak. Will oil surge back to the $150 per barrel level or will slower global economic growth ultimately weigh on the market?
For the complete article, see the March 2012 issue of Active Trader magazine. Click here to subscribe.
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